A better hand for modest players

Alfred Berkeley's Pipeline Trading Systems is an alternative stock market that intends to make money while screening its clients from predators.

October 31, 2004|By Bill Atkinson | Bill Atkinson,SUN STAFF

NEW YORK -- Less than a block from Grand Central Station, a new stock market is being born.

It doesn't employ hundreds of shouting traders, have a slick Madison Avenue advertising campaign or fancy offices.

Instead, a tangle of gray computer and phone wires hangs from the ceiling, secondhand desks abut each other and employees in the sales group, help desk, operations and marketing departments are jammed into a small white room tucked away from the bustling crowd on East 42nd Street.

"We do have a Renoir on the wall," quipped Alfred R. Berkeley III, chairman of Pipeline Trading Systems LLC, noting a cheap framed print of a painting by Pierre Auguste Renoir that hangs in a corner.

Berkeley, a former vice chairman and president of Nasdaq Stock Market Inc. and a former investment banker with Baltimore-based Alex. Brown Inc., is launching a stock market that one day may even compete with the likes of the New York Stock Exchange and Nasdaq.

It is an ambitious undertaking, especially since many of these markets, or alternative trading systems as they are more formally known, have crumbled. Those that have established themselves are locked in stiff competition. These systems, which are generally small, make money by bringing buyers and sellers together and charging a fee for every share traded.

"If you take a look at the track records of companies who have come into this space, the majority fail," said Alfred Eskandar, director of corporate strategy at Liquidnet Inc., an electronic trading firm in New York that competes with Pipeline. "There has been a ton of money thrown into this space. It doesn't even matter who you are, you really need the right model."

Berkeley believes he has the right model. He's on a twofold mission, he said: to make money and stop professional speculators and traders from taking advantage of millions of small investors and mutual fund holders. Small investors, including 92 million mutual fund investors, lose an estimated $25 billion a year at the hands of speculators and professional traders who, according to Berkeley, game a trading system that gives them plenty of advantages.

`Ripped off'

"The real benefit we are delivering is to the citizen savers who are getting ripped off," said Berkeley, 60, as he looked out a doorway over a handful of Pipeline employees riveted to their computers. "That is the problem we are trying to solve."

Berkeley doesn't look like a crusader. Tall and lanky, he is an entrepreneur, a student of business and a self-described technology nerd who munches Altoids breath mints throughout the day. He also has a wicked sense of humor.

While attending the University of Virginia during the mid-1960s, he pulled off a prank that remained unsolved for more than 30 years. Late one night in 1965, he and some friends led a cow into a building on campus and to the dome of the university's rotunda, designed by Thomas Jefferson. At an alumni dinner in 1996, Berkeley, for the first time, admitted that he was behind the stunt.

Air Force officer

Berkeley graduated in 1966, then earned a master's degree in business at the University of Pennsylvania's Wharton School. In 1968, Berkeley was married and commissioned in the U.S. Air Force as a captain at McGuire Air Force Base in New Jersey, which transported troops and supplies to Vietnam. It also used computers with huge amounts of memory to track 60,000 items, from missiles to T-shirts.

That's where Berkeley fell in love with computers. On weekends, he could be found "hacking around" on them, trying to see if they could do more for the military than just track supplies.

After his military stint, Berkeley joined Alex. Brown as a research analyst in 1972, and in a short time recognized the investment potential of computer software. He and another investment banker traveled the country, lugging L.L. Bean satchels crammed with paperwork and prospecting for promising technology companies.

The efforts of the team helped bring Brown millions in underwriting revenue as well as a list of clients that became among the best known in the industry: Microsoft Corp., Oracle Corp. and Computer Associates International Inc.

One thousand shares of Microsoft bought for $21,000 in 1986 dollars -- the year Alex. Brown helped take the company public -- is worth about $8 million today.

Berkeley was so highly regarded that he was named president of Nasdaq in 1996, beating out 136 other candidates. But the electronic stock market faced intense criticism and an investigation by the Securities and Exchange Commission.

Three months after he joined Nasdaq, the SEC issued a scathing report on Nasdaq that forced it to restructure its operation and bring in more independent directors.

Berkeley's mission was to modernize Nasdaq, keep it growing and make it fairer for small investors. He also worked to burnish its image with glitzy television spots and was involved in moving the headquarters to New York City from Washington.

Lopsided game

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